Estate Planning with MWPA- Ensuring Legacy & Protection of Assets

Difference between a nominee & a beneficiary-

Nominee is a person designated to take care of the asset or to act as a trustee of the asset after the asset holder’s death. It does not signify the asset ownership; nominees merely hold the asset on behalf of the legal heirs and they are ideally supposed to distribute this asset to legal heirs or successors of the asset as per the will or the succession laws of India.

In contrast, a beneficiary is an individual or entity entitled to receive the benefits of the asset. They are the legal owners or successors of the asset.

Most assets, such as savings account, deposits, investments in India, have a ‘nominee’ setup. Some of the assets such as life insurances, have the facility to add a ‘beneficiary’ to the insurance.

However, whether a beneficiary or a nominee, all the assets are considered a part of the deceased’s estate. The estate must first be set off against any pending obligations/debts before being available for succession. This means that whether received through nomination or as a beneficiary, in case of estate insufficiency, the estate could be claimed by creditors against unsettled debts. The estate could also be contested in court and could be frozen by a court or state order.

 

So, how does one ensure that the assets are passed on to the rightful holders without many hindrances?

One of the simplest and best ways in our system is through the MWP Act (The Married Women’s Property Act).

Did you know what is a MWPA beneficiary?

MWPA beneficiary arrangement provides for direct transfer of the asset to the beneficiary and protects it from any claims by creditors, court orders or state orders. An individual can protect the financial rights of a married woman and their children under the Married Women’s Property Act.

There are instances where politically exposed persons (PEPs) protect their assets under the MWPA in order to protect their family from future financial risks, such as the freezing of their assets due to court orders, and to avoid complications arising from their political exposure or career. This is also the case for individuals with significant loan exposure to safeguard the family’s financial security after them.

If an asset is protected under MWPA, then the legal and sole beneficiaries of the assets are the married woman and their children. No one else has a claim against this setup, including her husband, parents, in-laws, children from another marriage, or siblings, etc.

In most cases, to protect assets against claims, a trust must be set up. However, MWPA allows the protection without the need for that. It acts like a trust for without needing to create one.

 

Here are some real-life case examples of how MWPA beneficiary works-

Case 1: Real Estate Property Under MWPA

Smt. Narmada v. Smt. Kanti (AIR 1994 MP 252)

Case Details: This case involved a dispute where the husband had transferred property to his wife under the MWPA. After his death, the relatives contested the transfer, claiming it should be part of his estate.

Outcome: The court upheld the transfer under the MWPA, confirming that the property was exclusively for the wife's benefit and not part of the deceased husband's estate.

Impact: This case highlights the protection provided by the MWPA to ensure that property transferred to a wife remains with her, irrespective of claims by other heirs.

 

Case 2: Life Insurance under MWPA

P. Narayan v. P. Sudhakar (AIR 2000 SC 273)

Case Details: A businessman took out a life insurance policy under the MWPA for the benefit of his wife and children. Upon his death, creditors attempted to claim the insurance proceeds.

Outcome: The Supreme Court upheld the protection provided by the MWPA, denying the creditors' claims on the insurance money.

Impact: This case highlights the effectiveness of the MWPA in safeguarding the interests of the wife and children from the financial liabilities of the deceased.

 

Case examples contrary to MWPA-

Case 3: Estate Claimed by Creditors against Unsettled debts

P. Meenakshi v. N. Krishnan

Case Details: Mr. Krishnan had significant debts and had purchased a real estate property in his name, intending to benefit his wife. However, he did not register the property under the MWPA. After his death, creditors sought to claim the property to recover the outstanding debts.

Outcome: The court allowed the creditors to claim the property, as it was not protected under the MWPA. The property was considered part of Mr. Krishnan's estate and was used to settle his debts.

Impact: This case highlights the importance of using the MWPA to shield assets from creditors. Without invoking the MWPA, the property was vulnerable to claims by creditors.

 

Case 4: Real Estate Property Unprotected by MWPA

V. Padma v. V. S. N. Acharya

Case Details: Mr. Acharya had purchased property solely in his name and did not invoke the MWPA provisions to benefit his wife. Upon his death, his legal heirs, including his children from a previous marriage, claimed their shares in the property.

Outcome: The court ruled that the property was part of Mr. Acharya's estate and should be divided according to the applicable succession laws. The property was not protected for the exclusive benefit of the wife because the MWPA was not utilized.

Impact: This case demonstrates the potential complications and disputes among legal heirs when the MWPA is not used to protect the interests of the wife.

Disclaimer: The case examples presented in this article are sourced from various online resources and are intended for illustrative purposes only. While efforts have been made to ensure the accuracy of the information, the cases may not be verified or factual. Readers are advised to view these examples as hypothetical scenarios and consult legal professionals or authoritative sources for accurate and detailed information regarding the Married Women’s Property Act (MWPA) and its applications. The author does not assume any responsibility or liability for any errors or omissions in the content or for any actions taken based on the information provided.

 

One of the assets that can be easily protected under MWPA is life insurances.

Life insurance policies in India allow married men to take policies under MWPA while adding the wife and children as the direct beneficiaries of the insurance.

The MWPA protection ensures that the policy's benefits cannot be claimed by creditors or used to set off any pending loans. However, benefits of the insurance under MWPA are only available to the wife and the kids; no one else can be assigned as a MWPA beneficiary.

For more details on purchasing life insurance under the MWPA, you can read this article.

Note: The MWP Act provides a framework for married men to purchase life insurance policies in their name, making their wives and children the beneficiaries. However, there is no clear guideline on whether married women can also be the proposers of the life insurance under MWPA.

Disclaimer: Please consult a lawyer or a financial advisor for more information on purchasing policies under the MWPA.

 

Protecting other assets-

The other assets might not have the ease of MWPA protection like in the case of life insurances- such as your bank deposits, investments, properties etc.

However, these are some ways which can help you protect these in a better way-

Joint ownership of assets: such as mutual fund investments. Mutual fund investments held in an "either or survivor" account in India generally pass directly to the surviving holder and do not become part of the deceased's probate estate. As such, they are typically protected from creditor claims against the deceased's estate, and they do not go through the usual succession process outlined in a will. This direct transfer ensures that the surviving holder can access and manage the investments without legal complications.

Creation of Will and Its Validation: Not having a Will leads to succession through succession acts etc., which could create complications, allowing easy claims and resulting in a messy succession.

Assigning a nominee: Even in cases where a beneficiary is not designated, having a nominee is better than not having one since it helps smoothen the succession. In the absence of a nominee, accessing the assets can lead to legal complexities, such as requiring court orders and indemnity bonds signed by all legal heirs.

Estate planning using an estate planner

Building a Trust

 

Limitations of asset protection under MWPA

Here are some assets or properties that are typically not covered under MWPA-

Bank Accounts and Fixed Deposits

Mutual Funds and Investments

Business Interests and Shares: Shares in a company or business interests are not directly covered under MWPA. Transferring ownership or creating a trust would be necessary to protect these assets.

Pension Funds and Retirement Funds: retirement funds have their own rules and regulations, which generally do not fall under MWPA. These funds are governed by specific nomination and succession processes.

Ancestral Property

HUF (Hindu Undivided Family) Property: Governed by specific HUF laws

Assets that can be covered under MWPA-

Life Insurance policies, as mentioned earlier in the article.

Immovable Property: land and buildings, when transferred under the MWPA provisions.

The MWPA provision is significant as it provides a layer of financial security for the woman and the children, safeguarding them from potential claims by creditors.

 

Note by Priyanka Bohra V

Future Corp Capital

22/08/2024

 

Disclaimer: This information is for general guidance only and should not be construed as professional advice. For a thorough understanding of estate planning and how it applies to your specific situation, please consult with a qualified estate planner, financial advisor, or legal professional.

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